In its Budget report, the TSC said the Treasury should consider introducing a cap on annual contributions as an alternative to scrapping higher rate tax relief. A thinly veiled way of throwing doubt on the Treasury’s contention that this will raise tax revenue.

The committee noted that this Budget marks a departure from the long-standing principle that tax relief for pension contributions should be given at an individual's highest marginal rate…they also urged the Treasury to monitor the effect of this changes on pension savings and to keep under review the possibility that a cap on annual contributions might be a more equitable way of reducing the percentage of tax relief that benefits the highest earners.

This surely means that a committee of MP’s basically don’t believe what the Chancellor is telling us. Not only that but asking for a cap on contributions that might attract tax relief, isn’t that what 2006 pension legislation ‘A’ Day was all about?

The TSC also called on the Government to report on the revenue raised from the 50 per cent income tax rate in the 2011 pre-Budget report and to assess the yield obtained from the higher rate against its disadvantages. Surely this is a sign that this measure will actually decrease pension revenue going forward.

The committee concluded … ‘we were concerned that the Chancellor lacked a robust basis for selecting the threshold from which the new top rate of tax would apply and for choosing what that rate should be.’ Strikes me that the TSC don’t believe this policy has been thought through and is merely a populist measure looking to garner votes before an election.
 
The report also called on the Government to work up contingency plans to finance national debt if the gilt markets fail. (Gilts are the means by which the Government raises finance on the open market). The TSC said the cost of financing debt could rise to ‘perilous levels’ if demand for gilts dropped off.
 
The committee believe there are strong reasons why the costs of financing the Government debt could well remain low. But if the gilt market were to lose its appetite for Government debt, which is by no means impossible, the cost of financing that debt could climb. It also believes that the only real financial discipline that is currently imposed on the Chancellor is the opinion of the gilt market on the sustainability of the public finances….we are not out of the woods yet!